Good morning! Here’s what you need to know:
1. The Wall Street Journal reports: “AARP, the powerful lobbying group for older Americans, is dropping its longstanding opposition to cutting Social Security benefits, a move that could rock Washington’s debate over how to revamp the nation’s entitlement programs.”
2. The so-called “Biden Group” talks on deficit reduction intensified this week. Staffers will go “round-the-clock” next week as the Administration and Congressional leaders push for a budget. The Biden Group is hoping to achieve $4 trillion in savings over the next 10 years.
3. Senate Republicans outlined the terms of a possible budget deal to Washington Post columnist Michael Gerson: “a package of immediate and specific budget cuts; budget caps reaching out five years to reassure conservatives that tough budget decisions will be made in the future; Medicare reforms short of the House approach; no tax increases — a Republican red line — but perhaps additional revenue from the elimination of tax expenditures.”
4. Gillian Tett says we are heading into a sticky summer. Three major fronts are converging at once: the possible break-up of the eurozone, the end of QE2 and the (supposedly remote) possibility that no deal will happen on raising the US debt ceiling. A perfect storm could be disastrous.
5. Greece has a new finance minister, part of a broader reshuffling of government ministers designed to restore investor confidence. Investors, meanwhile, are increasingly rattled by the political turmoil in Greece, as well as the the political turmoil across Europe, as people rise up against austerity programs imposed upon them without their advice or consent.
6. The metaphor that Greek default would do to the markets what Lehman Brothers’ default did to the markets back in 2008 has become central to the whole eurozone news narrative. Our own Joe Weisenthal asks if we are heading into another Lehman weekend.
7. The Wall Street Journal reports: “The military is asking President Barack Obama to hold off on ending the Afghanistan troop surge until the fall of 2012, in a proposal that would keep a large portion of the 33,000 extra forces in the country through the next two warm-weather fighting seasons.”
8. US intelligence officers say that Al Qaeda will be a lot more dysfunctional and a lot less effective under the leadership of Ayman al-Zawahiri.
9. The Wall Street Journal reports: “The killings of American soldiers by Afghan troops are turning into a “rapidly growing systemic threat” that could undermine the entire war effort, according to a classified military study. The study by Jeffrey Bordin, a political and behavioural scientist working for the U.S. Army in Afghanistan, warns that the magnitude of the killings ‘may be unprecedented between allies in modern history.'”
10. California Governor Jerry Brown vetoed budget legislation, setting the stage for yet another fiscal crisis. State and municipal employees in New Jersey marched on the state capitol to protest budget cuts. In Alabama, Jefferson County braced for the lay-off of 40% of its public employees.